China’s economy

Served in China

Services are poised to become the country’s biggest sector

IF ANY economy is known for its industrial might, it is China. Manufacturers, miners, utilities and builders accounted for over 45% of China’s GDP in 2012. In America, by contrast, they typically contribute less than 20%. China, according to caricature, makes things you can drop on your foot. America merely designs, brands and peddles them.

Chinese industry is unusually large not just in comparison with post-industrial America, but also when set alongside other economies. According to calculations by Ejaz Ghani of the World Bank and Homi Kharas, now of the Brookings Institution, manufacturing’s share of China’s GDP was more than 18 percentage points above the global norm in 2005. Services, in contrast, were almost eight points below.

Armed with data like these, critics have accused China of a factory fetish. Subsidised land, credit and power have favoured industry, which tends to be capital-intensive and power-hungry. A cheap yuan has also favoured manufactured items, which can be sold abroad, over services, which often cannot be.

But 2013 may be the year that China’s services officially step out of the shadow of its smokestacks. According to the national statistics, services (which include transport, wholesaling, retailing, hotels, catering, finance, real estate and scientific research, among other things) accounted for 44.6% of China’s GDP in 2012. That is less than one point behind industry’s 45.3% (see chart). And services are growing faster.

The strength of services may reflect the ongoing rebalancing of Chinese demand away from exports and towards consumption. Their rise may also help to promote that rebalancing. Because services tend to be labour-intensive, their expansion should encourage faster job creation, higher wages and greater household spending. That would serve the world economy well, too.